Over the last two decades, OTAs have redefined the way travelers book their flights, hotels and in general their total trip and activities. According to Phocurwright, these Online Travel Agencies are now the fastest growing sales channels for attractions, activities and tours. There is no objection that the leaders of this sector will continue to be a big part of the market in the future, affecting directly both the travelers and the businesses that they cooperate with. This is exactly where Hoteliers and Operators come into play with the need to figure out the right balance between using OTAs profitably without becoming completely dependent on them.
The Cancellation trend
With OTAs having the power to influence travelers through more direct and focused marketing, consumers are encouraged by the formers to book now even if they are not sure about the dates or even if they will finally visit their dream destination. Such messages regarding flexibility pop up all along the stages of the booking process leading to customers booking now and feeling the security that they will take advantage of the free cancellation policy later on.
This process has led to a trend of users booking multiple properties far in advance and once their destination gets finalized, they proceed with the one and cancel the rest of them. While the travelers end up feeling happy for making the right choice matching their preferences and budget, it is the hotelier that gets left behind with unsold rooms and lost revenue. Even if some OTAs have agreed to charge a nominal cancellation fee to their customers, it is not a disincentive to counteract cancellations.
Start with some research
Researching the OTAs that you currently work with, their terms and conditions regarding the product can be a great start, plus you will be updated with any potential changes that have come up. Along to this, you should review and evaluate your property’s booking patterns. Do you receive a higher percentage of cancellations from Booking.com, Expedia or even your brand’s direct website due to offering such similar flexible terms? Is there any specific date-range (e.g. your guests cancel 7 days before checking-in)?
If you are not aware of the source, how will you come up with a plan of action to address it?
Defining the Action Plan
To help you minimize your revenue loss, we have gathered for you some best practices that hoteliers follow to counter OTAs cancellations. We advise you taking thoroughly into consideration your property’s data prior to deciding how and when to apply any of the following recommendations.
- Apply a more restrictive model
You have reviewed your channels and noticed that cancellation rates vary from one to the other with a certain one bringing you a higher number of cancellations. To reduce the loss and uncertainty from this specific channel consider amending your current cancellation policy into a more restrictive model. To do so, you have to check the contract and the agreed terms with this OTA and request them directly from them. If you feel that such a change will unavoidably reduce also your “healthy” bookings, do not hesitate to run it on pilot for a few months and decide through monitoring and comparing your data.
- Attack with overselling
This is where your data comes into play again and helps you start forecasting and overselling accordingly. To help you understand how this practice can work out for your property, let’s clarify through the below example with numbers:
You manage an independent hotel of 100 rooms and you have an agreement with 5 major OTAs, each of who is allocated 20 rooms to sell online. You have identified that through OTA 1 cancellations are on average 30%, whilst OTA 2 comes second with a total of 25% of canceled bookings. Start by increasing the room allocation of OTA 1 by 20% and monitor the results for a couple of months (taking into consideration seasonality and further factors) to check whether this action plan works in your favor. If so, move on with the amendment of OTA 2 in a similar way.
*Important: To avoid disappointing your guests, you need to find the right balance between the overall unsold rooms of the day and the number of rooms to oversell. At the end of the day, walking your guests out and receiving bad reviews is definitely a scenario that you want to avoid.
- Nurture your guests
We know you are interested into getting more direct bookings, this doesn’t mean though that OTAs is a channel to leave behind, especially when they have such power on your profitability. Take advantage of the data that OTAs are now sharing with you and through pre-arrival and personalized communication get closer to them. Offer them the warmest Welcome from the airport to your hotel and attract them with Activities, Tours and Things to do to stay committed to their booking. Freebies are always welcome, so do not forget to mention them or suggest an attractive package when booking with you directly.
Dealing with distorted demand and cancellations might be a matter of great importance when managing a hotel. However, it is not an issue to be solved within a week or so. There are lots of factors and data that stare into this play and dictate the terms under which you will be countering losses. All in all, after analyzing your forecasted versus actual demand, you would be in a position to track any variations. Your main goal from then and after will be to eliminate these forecast errors, so you predict with accuracy your actual bookings and cancellations over time.